If banks are where the money is, fee income generation is where the money is for bankers, according to a leading executive compensation consultant.

In its 1996 financial institutions compensation survey, Watson Wyatt Worldwide found that bankers in specialized fields linked to fee income tended to benefit the most from the industry's increased emphasis on pay- for-performance.

Double-digit percentage boosts in total cash compensation are going to those bankers as salary increases in the banking industry overall have been relatively flat - 5.6% annually for the last two years.

"Most functional categories that you'll see do well are more fee income, revenue-generating lines of business," said Marc M. McBrearty, director of survey management for Watson Wyatt Data Services. "That's where banks today are placing their emphasis."

Mr. McBrearty said the emphasis on fee income is linked to the effort by banks to expand into new lines of business, such as mutual fund sales and investment management. Banks have been spurred to move into these businesses as nonbank financial institutions encroach upon their core lending and deposit-taking functions.

The nationwide survey of 431 banks found, for example, that bank officers involved in various investment trading and sales posts got an average 29.3% increase in cash compensation this year on top of an 8% boost in salary. The comparable figures for investment management posts were 14.3% and 8.8%, respectively.

Old-line retail bankers, however, did less well in the Watson Wyatt survey, gaining an average 9.3% in cash compensation and 6.5% in salary. The rewards for corporate and middle-market lenders weren't much more attractive: 10.3% and 6.8%, respectively.

"Nobody's getting out of the lending business," Mr. McBrearty said, "but the emphasis on interest income is far less today than it was even five years ago."

The trend is vividly illustrated at First Union Corp., Charlotte, N.C., where Donald A. McMullen, head of the mutual funds group, is the fourth- highest-paid executive in the company, getting $1.5 million in salary, bonus, and stock awards last year. Mr. McMullen, who joined First Union just a year ago from Van Kampen/American Capital Inc., earns more than chief financial officer Robert T. Atwood, who pulled in $1.2 million, according to the bank's most recent proxy statement.

"If you want to be a serious player in the banking industry in some of these lines of business that are replicated outside of banking, you've got to have a strong incentive plan," said David Simmons, a principal at Towers Perrin in Atlanta.

But Mr. Simmons pointed out that areas of expertise that earn the greatest compensation also tend to be riskiest in terms of job security. "Banks don't pay those strong incentives for fun," he said. "If you're not earning those incentives, they'd rather get you out and get somebody in who can produce for them."

Growth in bank salaries, according to Watson Wyatt, has been relatively flat recently, up 5.6% in 1996, the same increase as in 1995. Since the consumer price index, a proxy for the inflation rate, is rising at a 2.9% annual rate for 1996 and rose 3.1% in 1995, the real income gain for those two years amounts to 2.7% and 2.5%, respectively.

Total cash compensation for bankers, meanwhile, grew 7.7% for 1996 and 6.3% in 1995. "The higher the level of employee, the more variable pay opportunity exists as a percentage of base salary," Mr. McBrearty said.

Watson Wyatt divided its survey respondents into six levels, with level one representing entry-level officers and level six the very top executives. The survey covered only salaried employees, not hourly workers.

Unsurprisingly, level six executives earned the biggest cash raises, averaging 14.6%, and the biggest average salary increase, 7.3%. Level one employees had to be satisfied with 5.4% more cash and 4.7% more salary.

"Those top executives who are bringing home significant returns to shareholders right now are getting sufficiently rewarded on the cash side as well as the salary side," Mr. McBrearty said. "That makes sense when you figure how much impact those individuals can have on the bottom line."

But for lower-level employees in jobs that don't generate fee income, a banking career's rewards are clearly less enticing. Said Mr. McBrearty, "If you're an auditor in a bank, 20 years ago you might have had a lifetime opportunity. Nowadays, it's 4%, here's a paycheck, and be thankful for it."

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